What the US, China and the rest of world need now is even more Fed stimulus

The US Federal Reserve seems to have pulled off a policy coup, delivering a third rate cut last week, calming expectations of future easing, but still providing plenty of cheer for markets. So what’s to worry about?

Quite a lot, actually, judging by the build-up of unresolved domestic and global risk factors. The impeachment threat against US President Donald Trump, the endless Brexit crisis in Europe and the US-China trade war are all signs of potential trouble facing the Fed.

The US economy needs more support, and there is pressure on the central bank not only to sort out domestic money market tensions but also to steady global financial conditions. The key worry is whether the Fed has sufficient firepower to finish the job. 

The central bank is a long way from policy normalisation. The world is still badly scarred from the 2008 financial crash and global demand warrants more attention. Thankfully, the chances of a US or global recession seem slim but the Fed has clearly been rattled enough by recent trends to recognise that more stimulus may still be necessary.